What to Look for When Screening Prospective Tenants

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(Newswire.net — January 18, 2020) — If you’re a first-time landlord, or you’ve never had a renter that you didn’t know on a personal basis, you might not be well versed in the process of screening tenants. But before you go out and sign a lease agreement with someone, you better make sure you familiarize yourself with the importance of doing thorough due diligence.

The Importance of Screening Tenants

“Troublesome tenants can cause issues with neighboring renters, and expensive evictions if they do not pay their rent. Tenant horror stories are everywhere, yet these situations could often have been avoided if the landlord had thoroughly screened rental applicants upfront,” SmartMove explains. “Many landlords think they can go by their gut instinct, however, good or bad feelings about a prospective tenant often are not predictive of how they will behave.”

It’s impossible to completely reduce all risk when renting your house out to strangers, but you can significantly diminish the likelihood of damage, missed rent, and neighborhood disputes by doing your due diligence. And if nothing else, this provides invaluable peace of mind.

Important Factors to Consider

You can choose to be as casual or thorough as you’d like, but it’s highly recommended that you dig into the following five factors before allowing any prospective tenant to sign a lease agreement.

1. Income

Do a little research into how much money your prospective tenant is making. And be sure that you’re looking at net income – not gross income.

You’ll have to use your own discretion when deciding how much income someone needs to rent your property. One rule of thumb states that a tenant’s rent should be no more than 40 percent of their net pay. In other words, a tenant should make at least $2,500 per month for a property that costs $1,000 per month. (Some landlords are more liberal with these numbers. So it’s up to you to decide what you’re comfortable with.)

2. Employment History

Current income only communicates one specific detail to you: How much the prospective tenant is making right now. But how much will the tenant be making in the future?

“This is hard to predict, since any number of factors could cause them to lose their job or switch jobs. However, you do have a reliable indicator you can review: the length of time they’ve held this position,” Green Residential mentions. “The longer your tenant has held a job, the more likely they’ll be to keep that job in the future. If they just got the job and don’t have much of a job history prior to it, take it as a bad sign.”

You can typically get an employment history directly from the applicant. You can also gather key details by speaking with the individual’s current employer.

3. Credit Report

You can tell a lot about an individual’s financial history and situation by pulling their credit score and report. This will help you see things like current debt, past delinquencies, bankruptcies, late payments, etc.

You don’t necessarily need someone with excellent credit. You do, however, want to scrutinize anyone with poor or bad credit.

4. Criminal History

You have every right to run a criminal background check on a prospective tenant to look for signs of past illegal behavior. While a DUI from 25 years ago might not matter, a recent string of charges for things like vandalism and abuse should cause concern.

5. Rental History

Always ask for a prospective tenant’s rental history, including contact information for any current or past landlords.

A current or past landlord can provide a wealth of information and insights into a prospective tenant’s level of responsibility, behavior, and even their disposition.

When speaking with a landlord, ask questions like:

  • Did the tenant ever break any terms of the lease agreement?
  • Did the tenant ever pay rent late?
  • How long did the tenant lease your property?
  • Did you part on good terms?

Look for any red flags in the landlord’s answers. If there’s something that concerns you, press in and find out more.

Protect Your Real Estate Investment

You have a right to choose who lives on your property. With the right tenant screening process in place, you can streamline your due diligence and spend less time interacting with the wrong prospective tenants. Good luck!